Foreign Relations of the United States, 1964–1968, Volume XXV, South Asia

376. Memorandum From the President’s Special Assistant (Rostow) to President Johnson¹

Washington, September 15, 1966, 7:30 p.m.

SUBJECT

• Effect of Indian PL 480 on US Wheat and Bread Prices

I now have from Agriculture, the Council of Economic Advisers and the Budget Bureau the formal analysis you requested of the relation between the proposed next PL 480 agreement for India and our own wheat and bread prices.²

No one can predict with absolute certainty that US wheat prices have leveled off for good after their June rise (though August held steady) or that speculators will not jostle the market again. However, these studies do conclude that:

• —Stopping this India agreement for 1.2 million tons of wheat through February would have a negligible effect on wheat prices here.
• —Even cutting off the whole PL 480 program probably would not reduce bread prices, because wheat accounts for only 14–15% of the retail price of bread. If bread prices rose, it would be largely for other reasons which slightly lower wheat prices (if they were possible) could only partly offset.
• —Our own wheat crop will come in 1.8 million tons (56 million bushels) higher than we estimated when, back in July, we allocated 11.3 million tons (413 million bushels) to PL 480 worldwide in FY 1967. So we will have more of a buffer than we decided then would be adequate to keep prices stable.
• —In general, there is no logical reason for wheat prices to move significantly higher, although there is always some risk that the speculators will read the signs otherwise. Agriculture will continue to tailor PL 480 programs carefully to the classes of wheat in better supply and to spread out purchase authorizations to minimize market effects. World wheat output is expected to be higher this year than last; the Soviet crop is better, lessening the pressure on Free World supplies; and the prospective crop from our own increased acreage allotments should begin to influence prices toward the end of the year.

Because of our clear commitment to India and the negligible influence of this program on our own market, I recommend we go ahead now with the Freeeman-Rusk-Gaud program of 1.2 million tons of wheat and 800,000 tons of sorghum (their memo attached).³ An agreement signed in the next two weeks will just barely keep the pipeline flowing. If you approve, I will ask Secretary Freeman to try to stretch this as far into January and February as feasible unless unexpected Indian developments cause us to take another look.

Walt

Approve⁴

See me

1. Source: Johnson Library, National Security File, Files of Walt W. Rostow, Meetings with the President, April–Dec. 1966. Confidential.
2. The analysis was in a September 12 Bureau of the Budget memorandum from Zwick to Rostow. (Ibid.)
3. See footnote 2, Document 371.
4. Neither option is checked. Rostow raised the issue again in a September 20 briefing memorandum for a Tuesday luncheon meeting. He noted that the Departments of State and Agriculture were pressing for a decision on P.L. 480 for the subcontinent. (Johnson Library, National Security File, Files of Walt W. Rostow, Meetings with the President, April–Dec. 1966) On September 23 Vice President Humphrey sent a memorandum to the President in which he added his weight to the judgment that the proposed P.L. 480 agreements with India and Pakistan could go forward without any predictable impact on the price of bread in the United States. (Ibid., Name File, Vice President, Vol. I)